Firms urged to play balancing act over China's anti-foreign sanctions law

Possible escalation of US-China feud intensifies pressure on Korean businesses

By Yi Whan-woo

A sweeping new law recently passed in Beijing to counter foreign sanctions is causing Korean businesses operating in both the United States and China to engage in a greater balancing act amid the intensifying trade conflict between the two world powers.

Effective immediately after its passage, June 10, the Anti-Foreign Sanctions Law targets those involved in designing or implementing U.S. and EU sanctions.

Blacklisted individuals or entities will be subject to denial of entry to China, deportation, seizure of properties and bans on commercial transactions with Chinese institutions.

Under these circumstances, Korean companies could be caught in the crossfire as the Joe Biden Administration is committed to forming distinctively anti-China supply chains jointly with allies, according to analysts.

“The law signals that when you have no standing or power to boss people around, then your law in the U.S. will get you nowhere in China,” Wei Jianguo, a former Chinese commerce vice minister told American media outlet, National Public Radio. “This law is like the ringing of a gong. It is a warning to the U.S.: You should be worried. China will not endure this treatment as easily as it once did."

Park won-gon, an international relations professor at Ewha Womans University, said the Anti-Foreign Sanctions Law will “force Korean firms to choose a side including with the Biden America” that has been eager to shore up U.S. competitiveness in the face of challenges posed by China.

Park argued that a failure to comply with anti-China supply chains means being excluded from benefits under the U.S.-led business standards for key industries, such as wireless technology, chips, large-capacity batteries, critical minerals and pharmaceuticals.

For instance, the U.S is trying to seize the initiative in the 5G-wireless-technology race against China by deploying viable and cost-effective alternatives, such as the Open Radio Access Network systems (Open RAN).

U.S. efforts are continuing to convince allies in Asia and Europe to exclude or limit business opportunities for Huawei and other Chinese suppliers of infrastructure equipment.

“It will be just a matter of time before U.S. allies, many of them trading partners with China, see themselves stuck between the Washington-Beijing row,” Park said. “Being faithful in observing U.S. policy may result in possible retaliation from China under its new law.”

In a report released June 11, the Korea International Trade Association (KITA) assessed that the Anti-Foreign Sanctions Law builds upon previous administrative counter-measures against foreign sanctions.

The new law is especially being carried out by the State Council, the chief administrative authority of China.

“In this regard, it can be said that China is clearly expressing its willingness to counter foreign sanctions and that a consistent observation of how the law is put into practice will be needed,” the report read.

Asked how urgently Korean companies should be prepared for the Anti-Foreign Sanctions Law, Park speculated it will depend on when the “anti-China” supply chains are completed.

“The firms have at least four to five years to prepare,” he said, explaining that such a time period is required for Korean conglomerates to build related infrastructure

On the occasion of the summit between President Moon Jae-in and President Biden, May 21, Samsung, Hyundai Motor, SK and LG pledged combined investments of $39.45 billion in chips, large-capacity batteries, critical minerals and pharmaceuticals.

Samsung was the only Korean company invited to a special White House meeting in April to discuss the global semiconductor shortage.

It was also invited to a conference held by the U.S. Department of Commerce on the sidelines of the Moon-Biden summit to further discuss the chip shortage issue.

Some of the four have been already constructing plants in the U.S., while others are looking for candidate sites.

Shin Yul, a political science professor at Myongji University, forecast that the U.S.'s strategic challenges to China may not happen during Biden's presidency, which could last up to eight years.

“This is because both sides' economies have been interlinked for decades and that they have so much to lose from decoupling,” he said.

He still warned that the decoupling will be “catastrophic” for Korean firms, because in the worst case scenario, they may need to shut down entire businesses in either the U.S. or China.

Lee Won-seok, a senior researcher at KITA, said Korean firms may not be able to manufacture goods in China and then export them to the U.S. if the decoupling happens.